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By Nico Coetzee, Executive: PPS Financial Planning
Retirement Planning is one of the most covered areas in financial services. At least once a year, normally in February at the end of the tax year, we are reminded how important it is to maximise our retirement contributions. Yet every retirement planning survey seems to confirm the widely held belief that most South Africans will not be able to retire and maintain their desired lifestyles. Why? Is it because South Africans have become poor savers? Well that may be true, but it could also be because we simply don’t know where we are going and even if we do have an idea of our destination we do not have a map or GPS.
Many retirement savers make this fatal mistake when embarking on their journey to retirement. They only take their current destination in mind, i.e. what can I afford now, and then fail to re-evaluate during the journey. That’s like saying I want to travel from Cape Town to somewhere in the northern part of South Africa, so I’ll take the N1 and then hope I get there. Then when I drive through Beaufort West I hope that I am still driving in the right direction. The problem is I still don’t know where I am going!
We have to start with the end in mind. Meaning we have to think about the lives we want to live during retirement. What does that look like? Retirement is different for everyone. Some people have that magical age when they want to give up on the commute to work, put their feet up and enjoy the fruits of their labour. Others are like George Burns who quipped: “Retirement at sixty-five is ridiculous. When I was sixty-five I still had pimples.”
We find that many of our graduate professional clients experience several life stages in retirement. First they scale down on work by focusing on consulting or doing part-time work, then they retire to enjoy time with their spouses travelling the world or spending more time with their children and finally they settle into a more inactive lifestyle as part of the retired community. These post-retirement life stages have definite implications for your financial plan as your income required may be low at the beginning and then escalate as per the life stages described above or it might start high and then reduce over time. Regardless, understanding what your desired lifestyle in retirement looks like is important to you now.
I realise that it may be difficult for some people to cast themselves that far into the future, but they should at least make some assumptions in terms of income required at retirement to determine the starting point. That then becomes our destination that we are working towards. We can then plan and see how close we will get. We can also update the plan along the way to ensure that our retirement stays up to date with the changes in our lives. The key here is that you need a destination and map. A good financial planner can help figure out what your retirement destination is and help you get there. So avoid becoming a statistic and get in touch with a planner now, before you end up in Springbok instead of Johannesburg.